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Foreign Investments in Asset Reconstruction Companies (ARC)- Guidelines Dated 11th Nov 2005

Foreign Direct Investments in Asset Reconstruction Companies (ARCs)

In consultation with Government of India, it has been decided to permit persons/ entities eligible under the Foreign Direct Investment (FDI) route, other than FIIs to invest in the equity capital of Asset Reconstruction Companies (ARCs)registered with the Reserve Bank of India.

It is clarified that in the ARCs, only Foreign Direct Investment will be permitted. However, investments by Foreign Institutional Investors (FIIs) will not be permitted.

Accordingly, Foreign Investment Promotion Board (FIPB) would henceforth consider applications from eligible persons/entities under the FDI route to invest in the paid up equity capital of Asset Reconstruction Companies which are registered with the Reserve Bank of India subject to the following conditions:

a. Maximum foreign equity shall not exceed 49% of the paid up equity capital of the ARC.

b. Where investment by any individual entity exceeds 10% of the paid up equity capital, ARC should comply with the provisions of Section 3(3) (f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

Investments in Security Receipts issued by ARCs

It has also been decided to grant general permission to Foreign Institutional Investors (FIIs) registered with Securities and Exchange Board of India (SEBI) to invest in Security Receipts (SRs) issued by Asset Reconstruction Companies (ARCs) registered with RBI. FIIs can invest upto 49 per cent of each tranche of scheme of Security Receipts subject to condition that investment of a single FII in each tranche of scheme of SRs shall not exceed 10 per cent of the issue.

The policy on FDI in ARCs would be subject to review after two years and that of FII investment in SRs would be reviewed after one year.

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